Tax, Slavery and Billionaires
In this episode, we speak to rising star economist, Gabriel Zucman. Together with Emmanuel Saez, he authored the recently published book, “The Triumph of Injustice”. We talk to him about his practical and influential plans to tax the rich, end tax dodging and fight inequality.
To start us off, Gabriel explains the big ideas in the book saying, “…The most important idea is the idea that tax avoidance, tax evasion, tax competition are not laws of nature, but they are choices that we make collectively through our governance... And we can make other choices…we can choose to have tax coordination, tax harmonization and other forms of globalization other than the current form of globalization…many people throughout the world and in fact most policymakers, have been convinced that taxing the rich, taxing the multinational companies, has become almost impossible in a globalized world…You tax them and they will move abroad, they will shift profits to tax havens, they will hide wealth, and so its hopeless and there’s no future for tax justice…and what we try to explain in the book is (that) this is wrong! We can make other choices and in fact it’s totally possible.”
We then ask him how to effectively tax wealth in a modern world. Gabriel explains, “…We think that the most direct and powerful way to address the trend is to have a tax on wealth itself...The other very important dimension is the corporate tax… More than 600 Billion dollars in profits are currently each year booked by firms in places like Ireland, or like the Cayman Islands, Singapore or Bermuda…What we are saying is the countries that are willing to do so, should act as tax collectors of last resort. So, for instance if US multinationals pay a 1% effective tax rate in Ireland, the US should collect what’s missing, say 24% to arrive to an effective tax rate of 25% in each of the countries where US multinationals operate… So collect this tax deficit and this would remove any incentive for tax havens who offer low tax rates in the first place and so you completely get rid of tax competition and embrace a new form of tax globalization that’s characterized not by the race to the bottom in income tax rates but by a race to the top where countries…compete by providing the best education possible to workers, providing the best infrastructure, and so on.
Gabriel hits back at critics who claim that taxing the rich more is anti-growth. To them he says, “Look at the data, and look at history.”… For instance,…the US used to have the most progressive tax system in the 1950s to 1960s and then quickly in the 1980s move to a less progressive tax system to the extent that today it is actually a regressive tax system where the super wealthy pay lower tax rates than everybody else…So, is it the case that trickle-down policies have boosted growth, has helped the majority of the population? And it’s very simple now to see that the answer is NO... From 1946 – 1980, the average income growth rate per adult was 2.2% and each income group of the population was growing at roughly 2.2% per year. Since 1980 to today, this average growth rate has been 1.4%...So you had much more growth when the tax system was more progressive, now you have much less growth…In 1980, the average income per adult was USD 18,000 per adult, adjusted for inflation and today it is USD 18,500 a year per adult. So, you’ve had almost zero income growth, over almost 40 years for half of the population. You have half of the population that’s been excluded from economic growth.”
Gabriel then goes on to explain, ‘It’s true that inequality has increased pretty much everywhere, but at a very different pace. In both (the US and Western Europe), the top 1% income share was 10% in 1980. In the US the top 1% now earns 20% of total income and in Western it’s about 12% of total income. So in both cases, inequality has increased but it’s increased more in the US than in Western Europe and it’s due to the fact that in both of these economies, there has been a turn to market fundamentalism to more egalitarian policies but the turn has been more extreme in the US than in other parts of the world. It means that policies are key. It is not globalization per say, it is not technological progress that’s driving inequality. It’s Government policies related to taxation, education, regulation of the financial industry, infrastructure…that’s what matters, that’s what shapes the distribution of income.”
We then question the political viability of his ideas. We ask him how exactly to get people convinced into the big ideas. He says, “I think people are already convinced…In the opinion polls conducted in the US and many other countries, you see that the idea of taxing the wealthy more, taxing big multinational companies more, making sure that the big winners from globalization instead of paying less, actually pay more.”
Gabriel unpacks American history on progressive tax policy. He debunks the notion that the US is naturally a low tax economy. “…It is true that there is a strong anti-tax, anti-Government and anti-democracy tradition. This is rooted to a large extent in slavery. The slave owners of Southern States in the 18th century were very concerned…that people would use taxation as a way to abolish slavery by having property taxes, for instance on slaves. These slave owners, these oligarchs, they developed the anti-tax rhetoric that is so powerful today. They did everything to say that taxes invade privacy; property rights are sacred; there should be strong, constitutional and legal safeguards against democratic tax policy making. They did everything they could to limit the progress of democracy in the southern states. (On the other hand)…the US invented some of the most progressive tax policies in the world…it invented with the UK the quasi-confiscatory taxation of very high incomes with top rates of more than 90% in the middle of the 20th Century. Franklin Roosevelt in a famous speech in 1943 said nobody should earn more after taxes than USD 25000 (at the time the equivalent of several million dollars). He went to Congress and said I think we should have 100% top tax rate above USD 25,000. People in Congress hesitated a little bit. They thought 100% was too much but they agreed on 93%. For several decades, that was the policy of the US. Even under Republican administration in the after-war period, the US also invested a quasi-confiscatory taxation of very high estates and inheritances with top estate tax rates of 80% from 1930 – 1980. So there is this tradition and we are seeing a revival today of that tradition and what we are trying to do in the book is help the US and the world reconnect with the tradition that’s been forgotten by many people in the West. People remember Ronald Reagan saying Government isn’t the solution, it is the problem, people hate taxes, it’s in their DNA…and they forget 50 years before that…and that is what we are trying to change.
Given a chance to talk to progressives in the world, Gabriel would say, “it’s possible to have a fair tax system in todays globalized world...” “The most advice the policymakers in (developing) countries have received from the IMF over the last decades boils down to this: you should have sales taxes, or value added taxes. You should tax consumption and we’re going to help you do that and you should not care too much about progressive income taxation or progressive wealth taxation…and I think that advice is short-sighted… because for most people, wealth is safety (and) security; but for the very very rich, wealth is not safety, it is power. An extreme concentrate of wealth means an extreme concentration of power, including the power to influence policy, influence markets, influence ideology through the media. If you want a healthy democratic society, you need to make an effort at limiting the power of the very richest individuals. So, the view that the only path towards prosperity and development is to have a regressive tax system and to tax and spend, is not true. You can rely essentially on progressive income and wealth taxes instead of consumption taxes.”
And finally, what gives him hope? “…It is history… I see that change happens over time and that things that people thought would never happen, at some point become reality…and it happens very quickly. …in 2009, there was no exchange of bank information between tax havens and foreign countries tax authorities…it was child’s play to hide assets… I remember NGOs saying that’s absurd. There should be an automatic exchange of tax information. …but policymakers said it’s utopian, it will never happen…it’s impossible. Then in the following years, we saw a new form of international coordination emerge… now many tax havens share information with many countries…despite the limitations, it’s big progress and it happened quickly. That’s what makes me optimistic about the future.
You’ll want to hear the star economist himself so do head over and take a listen: TAX, SLAVERY AND BILLIONAIRES - Meet Rising Star Economist Gabriel Zucman
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